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Ali Husain Rajabali speaks on kse crisis

Jun 12 - 18, 2000

The primary objective of the stock market is to help economic growth of the country through capital formation in the corporate sector. This principal aim, however, adversely affected because of practice of heavy speculative trading at the stock markets in Pakistan.

These observations were made by Ali Husain Rajabali, one of the senior most members of the Karachi Stock Exchange while talking to PAGE on the recent crisis of stock business which unfortunately led to default of a member of the KSE and many others at Lahore Stock Exchange.

When asked to suggest measures to bring more stability to the stock business and a risk free environment for investment in the stock business, Ali Husain strongly recommended that in order avoid recurrence of such eventualities in future, a T+3 system and national clearing system, for the delivery of all the transactions, should be introduced in Pakistan. This system not only will help achieving the main objective of capital formation through stock business but also would prove an effective check on speculative trade, which generally plays a mischievous role in destabilizing the market.

Elaborating his point of view, Ali Husain feels that Rs50 million limits allowed to the members against their membership card and assets is another tempting factor which incites the ambitious players to jump beyond their capacity. This exemption limit should be reviewed immediately. All transactions should be collateralized against a combination of at least 25 per cent cash and or at least other liquid securities. He said that T+3 type of trades practiced in the modern exchanges has to be our ultimate goal to attract genuine investors in this business.

The KSE management pleads that factors, which led to tumbling down of the market, were in no way related to regulatory issues or lapse on the part of the regulatory authority, which he said is a fact. The tactful handling of the issue by KSE management, the market escapes big crisis. The game as a purely market-related activity wherein certain market players had indulged in excessive over trading and had taken positions far beyond their capacity. This position was being built up on the basis of COT facility and that too without margin is available in the market.

When asked, Ali Husain Rajabali, how an investor can avoid such recurrence, he said that Central Depository Company (CDC) has introduced Investors A/c facility. This CDC answers to investor's problem by opening his account with CDC at a nominal fee of Rs300 per month. This Central Depository Company is created to lookafter all business accounts of the investors.

Ali Husain feels that significance of CDC needed to be highlighted more both by the government as well as by the Stock Exchanges in the interest of improving the safe investment climate in the stock business.

Regarding current state of affairs in the KSE, Ali Husain said that the worst is almost over now. The current levels of index i.e. around 1400 plus is justified with 100 plus or minus. The extraordinary upward trend when the index crossed 2000 mark was somewhat an engineered state of affairs. Justifying his argument he quoted the price of scrip which shot up to Rs150 from its actual market worth of Rs50.00. This was the result of a rally mobilized by some ambitious players and putting excessive money by virtue of COT arrangement, he said. Now the worst is over, he reiterated and described the present situation as an opportune time for the investment. There are plenty of choice scrips with strong fundamentals and good yields are available. He said that market could further stabilize and improve if the present government goes according to its privatization plans. He feels that privatization of even one public sector organization could add noticeable strength to the index.

He added that the management of the Karachi Stock Exchange has handled the crisis like situation with highest degree of prudence and responsibility that saved the credibility of KSE. This is really commendable. He also appreciated the useful and important role played by SECP in averting the crisis.